The CFO has long held the keys to the kingdom, is able to make you look bad or good to your board and shareholders, and is often serving as the cool head that ushers company leaders through a crisis. If you sit together on the executive staff, you want the CFO on your side. If you are the CEO, you want him/her in your lifeboat when the going gets rough.
What’s changing rapidly, though, is the intensity and breadth of the CFO role. The meticulous chief bean counter fell by the wayside long ago, but, until recently, a CFO still had a role that was basically contained within the realm of finance. A lot has changed in order to drive the rapid breakneck pace in the evolution of the CFO role. In fact, a more accurate descriptor might be revolution.
This revolution is a response to clamorous demands that tie the top financial role to several new market realities:
1. Our uber-digital world
Yes, I know, this tops every list of change agents today. For CFOs, though, the increased transparency that social media demands, plus the blinding speeds at which news and rumors travel, require some rather jolting adjustments in their modus operandi. The teeming media channels demand a level of brand awareness, reputation management and communication skills that predecessors never had to manifest.
Much that used to be announced only in a well-rehearsed annual shareholder meeting has now come down to a tweet.
2. KPIs vs. financial statements
For all intents and purposes, financial statements have been mothballed. Sure, they must still be churned out for tax purposes and to assuage the stodgiest shareholders, but key performance indicators are what people are watching. Responsibility for identifying the correct KPIs and assuring the integrity of the systems producing the KPIs are key parts of the CFO revolution.
3. IT is now central to company operations
While many CIOs sit side-by-side with CFOs, it is still more common for IT staff to report into the top financial executive. The IT function alone is increasingly complex, as information systems monitor, measure, control and report on greater quantities of data. Competitive pressures today require a historically sharp red pen. But, like a medical center that buys an MRI machine and then discovers all manner of new reasons to scan people, the greater metrics capabilities of our systems inherently generate more new things to track. For the CFO, these capabilities require integration into existing metrics and create much more complex routes to those KPIs.
4. Activist boards
And, speaking of those competitive pressures, shareholder coalitions and activist boards are, of course, the most vocal symptoms of these tense economic times. CEOs aren’t going it alone. They are often counting on the CFO to be the chief strategy officer, chief translator and chief defuser. Oh, and the numbers still have to be right!
All of this makes the CFO a strategy partner to the CEO. He has gone from being a technical expert to a strategic commercial leader. To define the role even more succinctly, IBM studied 576 CFOs and identified four profiles. Those they describe as 'value integrators' (high on both finance efficiency and business insight) far exceeded the others in successfully measuring and monitoring business performance, managing risk and generating predictive insights. They were better than their peers at integrating information from numerous internal sources, as well as exceeding at planning, budgeting, forecasting and fine-tuning financial processes. The only thing they were NOT as good at was transaction processing, a more elementary financial function.
IBM went on to identify the true superstars as a small subset of the value integrator they dubbed the 'performance accelerator.' These CFO’s had also demonstrated skills in such broad areas as investor relations, continuous process improvements, developing talent within the finance organization and driving integration of information across the enterprise.
Where do we find these modern-day Atlases? That is a question many boards and CEOs grapple with today. We can gain insight from Deloitte’s 2015 global survey of 3,300 executives and HR heads, which reflects a growing concern with company leadership across all functions. Deloitte first asked respondents to rank 10 broad areas of concern. For each of these, they created an index that represents the gap between the importance of the issue and satisfaction with their company’s progress. Consistently, across every company size and in every nation, the gap relating to effective leadership was the widest among the 10 top concerns. This has increased year over year.
It is a safe bet that these findings are particularly relevant to CFOs, who in many industries are the highest in demand and the toughest C-level executive to find – at least this new breed is. I talk with clients who feel blindsided by the pace at which the CFO role has changed. When they lose a CFO, they are looking down an empty pipeline of successor candidates. Deloitte’s survey results reflect this planning deficit as well, with only 10 percent of respondents reporting that they are comfortable with their succession plans and only 7 percent having strong programs for developing millennial leaders.
Among the surveyed companies’ chief goals was simplifying jobs across their organizations (do less, but do it better), yet this doesn’t look to be in the cards for the CFO. Recognizing that it is a different animal today than even a decade ago is an important starting point. After that, viewing the CFO as someone who is, in every practical sense, very nearly an equal partner with the CEO, is a viable response to this revolution.
Paying attention to the succession pipeline and assuring robust development and coaching for second- and third-tier financial managers is the only organic way to build CFOs. These internal high-potentials also need the kind of cross-functional experience that gives them a broad view into the complexity and challenges of the organization, including time in a general management position.
Finally, selecting candidates for the CFO talent pipeline requires a new lens. The kind of individual who was once suited for the role – someone who excelled at structured problem-solving and detailed analysis – will not make it past mid-level management or controllership. The new CFO may not have to possess the breadth of a CEO, but in addition to his or her core skills, strong communicating, negotiating, strategic thinking and advocacy abilities characterize this new CFO. As the IBM researchers concluded, the best CFOs “have a much better grasp of the digital domain…second, they understand – and collaborate with – customers far more extensively than other CFOs.”
The CFO as succession candidates
Perhaps the most telling indicator of the CFO revolution is the rate at which COO roles are being abolished. In the past two years, McDonald’s, Twitter, Tiffany & Co., Ford Motor and PetSmart all followed this pattern, with the CFO picking up the most significant responsibilities.
I find, more and more, our clients are looking for CFOs who will be CEO succession candidates. There is a premium for those candidates with broader experiences in operations, public relations, investor relations and strategic commercial development. Not to mention those that know how to keep the CEOs lifeboat afloat in choppy waters!